By Charles Abuede
- CBN injecting $30m into BDC to enable FX accessibility
- Speculators, BDCs face anxious moment
- Analysts say the FX sales resumption will stabilise the market
After five months of placing an embargo on the sale of foreign exchange to bureau de change (BDC) operators, the Central Bank of Nigeria (CBN) said it will today, September 7 resume the business of selling foreign currencies to the BDCs, as part of efforts to enhance forex accessibility on the back of the resumption of international flights.
On account of that, following pensive activities in the unofficial and BDC currency markets last week, all eyes are trained on the these windows to see what the fallout would be should the CBN fulfill its promise to release forex to BDC. The attention will indeed be to find out what exactly the naira will eventually trade against the dollar when the market opens, when it closes today and what eventually happens at the close of the week.
Though, following the announcement by the apex bank to resume FX sales, the naira began appreciating against the dollar in the past one week, a situation that has dealt speculators a huge blow.
Prior to CBN's renewed intervention in the Investors & Exporters (I&E) window last Monday, the Nigerian naira traded for as high as N480 to the dollar, prompting suspicions that the domestic currency was heading on the road to a free fall. Also, at the start of the month, the local currency traded at N440 to a dollar in the parallel market, representing a 5.4 per cent rise against the dollar.
Meanwhile, at the time of writing this report, the official CBN rate still stands at N380 to a dollar while bank rates stood averagely between N400 and N470 to a United States dollar.
With these developments emerging within the foreign exchange markets, as well as from the monetary authority, it does leave operators and traders, as well as speculators, in a bind owing to the need to buy the weakening dollar on the back of naira gains. Will a fair level of demand and supply expectations create stability within the market and strengthen the rate of exchange?
Uche Uwaleke, a professor of capital market at Nasarawa State University and a fellow of the Institute of Chartered Accountants of Nigeria (ICAN), in a note to Business A.M. in reaction to the latest development, disclosed that it is common knowledge that the foreign exchange pressure is partly the result of speculative demand for dollars due to concerns that the CBN would be compelled to further devalue the naira owing to forex scarcity.
“Not surprisingly, the supply of forex in the black market has suddenly improved with speculators anxious to offload the dollars in their possession to minimize losses. Consequently, the black market rate has tumbled to as low as N420 as of Friday.
“This explains why speculators and foreign currency hoarders appear disappointed by the resumption of dollar sales to Deposit Money Banks to clear arrears of demand as well as the announcement to commence sales to BDCs on 7th of September,” said the capital market professor.
Meanwhile, Aminu Gwadabe, who is the president of the Association of Bureau de Change Operators of Nigeria (ABCON), is drumming up support for the move by the CBN, as he noted that the expected intervention in the bureau de change market, which has about 3,000 operators, would ensure stability in the foreign exchange market.
Gwadabe further revealed that forex market speculators have been dealt a big blow following the steep fall in the exchange rate. He, however, noted that the downward trend will continue on the back of international flight resumption within and outside of Nigeria.
On the other hand, the ABCON president asserted that the challenges to be faced by operators in the market will lie on the profit margin, which is just N2, and not enough to cover up for their expenses, citing that the parallel market trades at N430 to a dollar while the BDC rates, according to the CBN, will be pegged at N386 to a dollar and thus creating another gap across the markets.
In a related development, Business A.M. correspondent who spoke to some traders, found that with the speculation that there might be some value appreciation of the local currency in coming weeks on the occasion of the weakening dollar, as well as rallying oil price in the global market, some customers are beginning to express calmness in respect to their dollar demand.
A source revealed that some influential individuals are now beginning to sell off their hard currencies on the news that they could lose a fortune when the CBN FX injection into the BDC resumes. However, those who earlier had the dollars in their possession at an initial price of N470 to N479 to a dollar were selling at a discount to customers at the weekend.
Uwaleke, while commenting on the recent downward trend of the dollar as a result of the news by the CBN to inject forex into the currency market on the back of the international flight resumption, which has been viewed by many will come along with activities that would firm up dollar value, the capital market professor further stated that he is certain of further crash in the hard currency within the market.
“I think it will crash further as soon as the CBN resumes sale to BDCs on Sept 7, which is proof that a lot of dollar demand in the black market is artificial or spurious and so any rate obtained there is not a true reflection of the naira value as many had alleged.
“With external reserves of over $35 billion sufficient to finance many months of merchandise imports and international crude oil price on the path of gradual recovery, I have no doubt that the CBN will sustain the liquidity in the forex market, including the weekly sales to BDCs which, I understand, now number about 5 thousand,” Uwaleke said.
On the current circumstances which press the need to stabilize the exchange rate market, the ongoing convergence, which has seen the monetary authority on several occasions take a giant stride to unify the exchange rate, has also experienced a setback in the hands of hoarders who also practice rationing in the market. Similarly, putting an end to rationing in the exchange rate market might bring about stability to the market which will in turn bring about gradual recovery.
“This development, coupled with the ongoing process of exchange rates unification should help stabilise the forex market and incentivise the return of foreign investors- a development that will lead to further external reserves accretion with positive multiplier effects on the economy,” Uwaleke asserted.
Meanwhile, the exchange rate traded on Friday, September 4 at N440 to a dollar in the parallel market indicating a flat movement on a day to day comparison. Similarly, with the initial rate noted at N465 per dollar at the start of the month and standing at N473 on a month to month comparison, it now means that there was a 6.9 per cent decrease in the value of the dollar since the start of August through to the start of September. As the market opens today, all eyes will be on the market, once the CBN releases forex to bureau de change operators.
